Direct-to-Consumer Business Model in CPG: How-To Guide for Brand Managers

This is a special guest contribution by Christy Chak, Shopify Plus’ key accounts team lead

So, you’re a brand manager at a CPG or FMCG organization and you’ve got a great idea on a compelling product offering in the direct to consumer (D2C) ecommerce space.

Or, maybe not. Maybe you’ve been tasked with finding a new product opportunity or a brand extension in order to continue building out your brand’s appeal.

Either way, you’re asking yourself, “How do we start selling in D2C?”

Having worked on hundreds of D2C expressions for brands like Nestle, PepsiCo, Unilever, GE, Nescafé, Durex, Perrier, Turtles, Blue Diamond, Cheetos, Clearasil, Blue Diamond, and more … answering that question is what this guide is all about.

Fun fact: before making big purchases, approximately 81% of shoppers default to online research. Not so fun facts: the Interactive Advertising Bureau (IAB) reports US CPG in-store retail sales are flat across all industries with only 0.5% YoY growth.

Build a sustainable, standalone business line that will complement your brand?

So many questions. There is no right or wrong answer because ecommerce and D2C can be leveraged for any or all of those use cases.

The key is to identify the overall goal you have for this particular project at the start. This will allow you to make other decisions more easily, as well as get buy-in from everyone involved.

2. Timeline

In many cases, CPG brands start a D2C business model in anticipation of a specific deadline. Something like an existing media buy, the holidays, an event or conference, or a celebrity spokesperson who has hard-and-fast availability in their calendar.

Figure out what your ideal launch date is — and also a contingency of what might happen if you don’t meet that time frame — then, work backward to identify all the steps you’ll need to take in order to meet this timeline.

This always helps keep everyone’s eye on the prize (or in this case, launch) to make sure you’re all working towards the same deadline.

Typically, most merchants on Shopify Plus launch within a 90- to 120-day window. Our experience with CPG and FMCG organizations is that projects usually go on a much quicker cycle.

The good news is most brand sites tend to be focused on front-end design, are more content heavy, and have fewer SKUs and back-end integration requirements. Obviously, the more notice you give your partners on your particular requirements, the more they can help make your timeline achievable.

Pro tip:

If your organization has never worked with Shopify or Shopify Plus before, allow extra time to go through your organization’s business processes like security and legal reviews, procurement and vendor assessments.

Depending on your organization’s policies, these additional processes could add an additional 4-8 weeks of lead time.

Mondelez International cookie giant, Oreo, chose to mark their centenary with a holiday-focused D2C campaign, Oreo Colorfilled, by letting customers customize their Oreo packaging and send them anywhere in the world.

Naturally, the two launch dates — their centenary and the holidays — formed the backbone of their timeline.

3. Technology

Now that you know what you want to do and when you want to launch, it’s time to select a commerce platform. There’s a lot of choices out there but we’ve seen that the most important metric for CPG or FMCG organizations is agility and user-experience.

Many of the largest multinational organizations rely heavily on legacy technology that was implemented 20 years ago.

The theory was big companies needed big technology.

However, what we’re seeing in this space now is that these legacy technologies are now clunky, far from user-friendly, and unable to adapt to today’s fast-moving consumer environment.

The ability and importance of being agile and quick to respond to consumer trends should not be overlooked during the platform selection process. Having a flexible and agile platform means that if there’s a current event or a pop culture incident that allows you to target your product to consumers, you can implement it on the fly, without having to submit an IT ticket and not see the change come through until a few weeks later (at which point, the opportunity to capitalize on the event will likely have passed).

International wine retailer, Drinks & Co., used Third & Grove to create their eshop

4. Partner

Once you’ve settled on a platform, you now want to make sure you have an implementation agency that can help get your site up and running.

Typically, most CPG and FMCG brands have an agency of record – more often than not, a creative agency that may not necessarily have worked (a) with the technology platform you’ve selected, and (b) in the ecommerce space.

Because of the sheer size of CPG and FMCG companies, the most successful projects leverage a platform implementation partner. This allows you (the brand) to focus on the overarching ideas and go-to-market plans rather than execution.

In just five weeks, K-Swiss and sister brands Palladium and Supra, replatformed to Shopify Plus in multiple languages and currencies. The ace up their sleeve was working with Shopify Plus Agency Partner, Guidance for both front- and backend development.

5. Payments

An element that commonly gets overlooked by CPGs is how to collect payments from end consumers. These concerns have traditionally been handled by retailers so you’ll begin to work fairly closely with your finance teams as you embark on your direct-to-consumer journey.

To prepare for launch, you’ll need to have a credit card processor that will allow you to collect payments into your company’s bank account.

Some organizations already have existing global agreement with processors so that should be the first avenue you check. Alternatively, some ecommerce platforms, like Shopify Plus, provide an in-house payment processor that eliminates the need for you to sign up for another vendor if your organization doesn’t already have one in place.

When selecting a credit card processor, most people look immediately to the processing rates and use that as a basis for comparison (although the complexities behind making sure that you have an apples-to-apples rate comparison could merit a whole article of its own).

While that metric will undoubtedly have an impact on P&Ls, you also want to look at factors like approval rates (which could be dependent on the processors’ algorithms), payout times, and ease of reconciliation.

Equally important is ease of use on the customer side. Absolut Elyx Boutique’s product pages and cart leverage a host of payment options, including:

In the top left and right panels, Absolut Elyx Boutique also uses Shopify Scripts to increase average order value by setting and automatically updating a free-shipping threshold

6. Fulfillment

Since most CPG and FMCG companies aren’t in the business of customer fulfillment, ensuring your back-end logistics are managed efficiently is a critical element of D2C. Because fulfillment is also not an extremely differentiated service, you can use the following criteria for selecting a fulfillment company:

Warehouse proximity

You’ll likely want to pick a third-party logistics (3PL) firm that has a warehouse close to where the majority your customers are located (or where you think they will be if it is a new project). Alternatively, you may want to select a warehouse close to where the products are being manufactured. Either way, warehouse location should be a strategic decision.

Packing

If you have any special packaging needs or product storage requirements (e.g., refrigerated products), you’ll want to identify whether the 3PL can accommodate them.

Integration(s)

If you select a 3PL that already has an integration to your ecommerce platform, that will be the easiest route from a time and cost perspective. However, if the 3PL you’re using doesn’t currently have an integration, a fulfillment integration is a fairly straightforward build. Just make sure the agency partner you’ll be using has incorporated that need into their scope.

Pricing

Costs will likely be a factor, especially as your business scales, however, it would be remiss of you to make a decision solely on price.

Don’t forget to ask the 3PL you’re considering for references from existing clients and see if they have experience working with businesses in a similar industry as you.

Depending on your goals, fulfillment can be a major centerpiece of your D2C business model …

For example, to celebrate the 30th anniversary of the historic Air Jordan III, Brand Jordan wanted to do something monumental. In partnership with Snapchat, Shopify, and Darkstore — a fulfillment provider — the company launched the sale of the Air Jordan III “Tinker” at the NBA Jumpman All-Star after-party in February 2018.

“This is the Holy Grail of the experience [Nike is] trying to intend, which is direct to consumer to the actual consumer, versus a bot, — and same-day delivery,” explained Lee Hnetinka, Darkstore CEO, to TechCrunch. “The Snap code introduces a new paradigm for commerce.”

The Snap codes directed them to SnapChat where they could purchase the sneakers in the social media platform, natively

By partnering with Darkstore, Brand Jordan was able to use their local (secretive) storage facilities to deliver the merchandise within hours of guests ordering the shoes.

Next Steps

You’ve established the goals for going D2C and received buy-in as a result. Your timelines are clear and you know what target you’re trying to hit. You’ve chosen a platform that can do what you need at the scale you need it, and your agency partner is on board to help execute on the back end. Your budget is clear and has been approved, and you’ve worked out the logistic details to be about to meet demand.

So what comes next?

Implementation. Once all these elements are in place, you’re ready to get started. You’re ready to bring your brand to the D2C forefront and connect directly with your customers like never before.

About the Author

Christy Chak currently leads Shopify Plus’ key accounts team, which primarily focuses on assisting large multinational organizations — specifically those in the CPG space — to develop and enable their direct-to-consumer strategies and capabilities.

From her experiences, Christy can share insights and best practices gleaned across the businesses in her portfolio. She is a strong believer that agility and experimentation is crucial for large organizations to succeed in today’s commerce environment.